A Tale Of Two Supply-Chain Overhauls

The onset of the pandemic in early 2020 created an all-hands-on-deck moment across the North American headquarters of Switzerland-headquartered Roche Diagnostics, the world’s largest biotech company. Suddenly, the Indianapolis-based office was being called upon to supply six times its previous volume of polymerase-chain reaction (PCR) Covid-19 tests, said CEO Matt Sause. “This had been a low-volume business. One of our instruments that does Covid-19 testing has 23,000 individual parts and takes seven to 10 days to assemble—it’s the size of a small SUV.”

Sause reported that the company “went from the first knowledge of the Covid-19 [genetic] sequence to [federal] authorization of our tests within six weeks.”

Here’s a roadmap of how he did it:

Corral a team: Sause pulled in a small, highly dedicated team for pandemic response consisting of “the best talent from anywhere in the organization,” he said.

Spread the risk: Roche boosted its global supplier network, speeding production and creating supply-chain redundancies “across items we knew were absolutely critical.”

Tighten the chain: Roche learned the importance of creating full collaboration and transparency with suppliers.

Leverage purpose: Roche hired hundeds more people in Indianapolis and for a New Jersey manufacturing site to scale up PCR test output, assisted by communicating the importance of the work that Roche was doing. “It really focused on the proposition of working for an organization with a mission and an ability to impact the healthcare environment in the U.S. and globally,” Sause said. “We were able to recruit talent from competitors.”

Care enough: A supportive environment helped Roche’s team get through: For example, the company gave flight upgrades and free dry cleaning to field engineers whose roles demanded they be in hospitals and clinics as the pandemic raged.

As a leader, Sause learned about “when there isn’t sufficient data to make decisions with adequate certainty to the outcome. You have to use past experiences to plumb up future decisions. When do you obey your gut; when do you look for more data? Having to constantly toggle between those two things has been an absolute challenge.”

Meanwhile, south of Indianapolis in Columbus, Indiana, Cummins was refocusing on its own supply chain. The iconic supplier makes 1.3 million heavy-duty engines for trucks, earth movers and other pieces of equipment that handle “the toughest, dirtiest, nastiest work on the face of the planet,” explained Andrew Penca, Cummins’ executive director of supply chain, employing more than 30,000 people at 125 sites around the world, the majority serving local markets.

Covid tested the company’s resilience as never before. Short-term challenges included a significant and complicating manufacturing presence in Wuhan, shortages of containers and supplies around the world, and the mid-winter Texas deep freeze and power outage that chilled a castings operation in Mexico. Plus, the microchip shortage slowed output of transportation equipment around the world.

There’s also looming impact from the new U.S.-Mexico-Canada trade agreement because about two-thirds of Cummins’ direct material supplies come from within North America.

At the same time, Cummins now is happy to be coping with a quick snapback in business from Covid lows. And the short-term dynamics put into place by all these developments have helped focus Penca on a long-term overhaul of Cummins’ supply chain.

Here’s how Penca approached the transformation:

• Restructure the chain: “How do we maximize our base business and drive efficiency and standardization?” is one big issue on Penca’s plate, he said. “A lot of our supply chain has been structured in business units and the functions supporting them, but how do we move more end-to-end overall with an integrated supply chain? And when we get into a constrained environment, how do we make decisions about where parts should go?”

• Work deeply with Tier 2s and 3s: Lack of visibility into Cummins’s Tier 2 and Tier 3 suppliers—and the risks of dealing with them—“was a massive gap for us,” acknowledged Penca. “But in terms of moving forward, it’s a huge opportunity. We aren’t trying to beat them up and say we need our parts faster, but we are partnering. We’re doing more dual sourcing. We’re sharing a lot more information about our long-term view. We didn’t do that in the past.”

• Raise expectations: Cummins keeps demanding more from suppliers. “We expect them to work with us to clear roadblocks,” Penca said, such as solving their own labor shortages and staying “current with Industry 4.0” technologies, and required investments in areas like augmented and virtual reality and 3D printing. “Suppliers have to make themselves competitive and appealing in Industry 4.0.”